Should you buy college tuition insurance?

Paying for college can be one of the biggest financial commitments you’ll ever make. Many families struggle with whether they should purchase insurance to protect their investment, a decision that becomes even more complicated during the COVID-19 pandemic.

Considering that the annual cost of tuition, fees and room and board is approximately $27,330 for public schools and $55,800 for private colleges, you may be tempted. If your child withdraws from school, a tuition refund policy will reimburse you for the tuition, fees and on-campus housing you paid.

The insurance costs hundreds of dollars per year, depending on the program, and is offered by hundreds of schools, primarily through third-party sellers such as AWG Dewar and GradGuard. Insurance must be purchased by the first day of the semester.

But as with any insurance product, the devil is in the details. Most plans only cover exits for serious health issues, such as serious injuries or illnesses, chronic diseases or mental health conditions. Some carriers may be excluded from illness due to a pandemic.

Insurance will not apply if a student drops out for academic reasons, is expelled, or is just unhappy at school.

“For most families, insurance is not necessary,” Stacey, senior director of college finance at Bright Horizons College Coach and former financial aid officer at Emerson College MacPhetres said. “Most college students are young and healthy, so they may not need to drop out of school for medical reasons.”

According to the nonprofit National Student Clearinghouse, which provides educational data and research, about 113,000 students will take a leave of absence for any reason in 2021, including sick leave for mental health issues. These withdrawals represent less than 1 percent of the 17 million students who will enroll in fall 2021.

Nonetheless, the pandemic has heightened the sense of risk for many families, and a recent survey by College Pulse and GradGuard found that nearly four in 10 students said they had considered dropping out of school for reasons such as financial problems, academic challenges, health issues, illness or injury.

Given these concerns, it may make sense to consider purchasing this insurance in some cases.

Understanding how college tuition insurance works
To make a decision, the first thing to do is read the fine print on the policy to determine if it applies to your son or daughter. Note that to collect premiums, you will need to document all claimed expenses and have a doctor recommend that your child withdraw from school. Many policies cover mental health issues, but check the insurance company’s rules for the necessary documentation.

Then find out how much the insurance covers. Some plans reimburse 100 percent of covered expenses; others will only reimburse 75 to 90 percent of the money you lose due to withdrawals. Tuition insurance may seem like a good idea if your child has a chronic health problem, but some policies do not cover pre-existing conditions.

In the past, college tuition policies typically excluded coverage for epidemic-related illnesses. But recently some providers, including GradGuard, now cover COVID-19 medical conditions.

Before you buy, be sure to check the details of your policy to ensure that the risks for which you seek coverage are covered.

You may already have insurance
Keep in mind that most schools have a refund policy that refunds tuition at a decreasing rate based on the date of withdrawal, but usually not beyond the first month of the semester.

But check the details of the refund policy and ask if there are exceptions, such as medical or mental health issues or other emergencies, MacPhetres said.

In most cases, if your son or daughter withdraws at the beginning of the semester, the college may refund most of the tuition and housing fees you paid. If you do have tuition insurance, the policy will cover any fees not paid by the school if the child has a written reason for withdrawing.

For example, at Boston University, students who withdraw two weeks prior to the start of the school year may receive between 20% and 100% of their tuition back, depending on when they leave the school, but not after October 11 of the fall semester.

At Vanderbilt, the policy is more generous. Students can withdraw at any time during the first nine weeks and receive between 40 and 100 percent back.

Ultimately, the decision depends on your financial and medical situation and the policy rules offered by the university program. If you pay full freight for tuition, paying a few hundred dollars more for insurance may not affect you much. macPhetres says tuition insurance may be worth it if losing a certain percentage of your tuition would have a serious financial impact on your family.